The correlation between returns to BMW stock on the Deutsche Bo¨ rse and the German DAX stock market index is 0.44 when all returns are calculated in euros. The standard deviations of monthly returns to BMW stock and the DAX are 10.5 percent and 4.6 percent, respectively.
a. What is the beta of BMW relative to the DAX stock market index?
b. If the euro risk-free rate is 5 percent and the DAX market risk premium is 6 percent, what is the required return on BMW stock when measured against the DAX stock market index?
c. The correlation between the DAX and world stock market indices is 0.494. The standard deviations of monthly returns to the DAX and world indices are 4.13 percent and 5.26 percent, respectively. What is the beta of the DAX stock market index relative to the world stock market index?